The Federal Reserve has announced that it doesn’t intend to “be a climate policymaker”. But what impacts could this hands-off approach have on your retirement savings?
On Thursday, Federal Reserve Chairman Jerome H. Powell stated that climate policy should be left to elected officials, effectively washing the Fed’s hands of its responsibility to help address our collective climate crisis. Powell also said that the Fed should “not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”
However, the Fed’s central goals – max employment and price stability – cannot be met in a world facing catastrophic impacts from climate change. This means that failing to address the climate crisis is actually counterproductive to the Fed’s mission.
The Fed is responsible for ensuring the stability of our financial system, and the climate crisis poses significant risks to our economy – and our retirement savings. If unaddressed, climate change could mean your 401(k) savings lose value, due to extreme weather events, transition risks, and other impacts.
Furthermore, climate change is a key driver of the inflation that is creating economic turbulence in the U.S. and across the world. Simply put, climate risk is economic risk. The Fed is already a climate policymaker – through inaction, they are contributing to that risk.
There are some steps the Fed could be taking to minimize these risks that would be in line with their core mission of price stability and maximizing employment:
- Scrutinize bank lending to businesses that could be risky in the face of climate change.
- Factor in climate change when assessing the overall financial stability of the economy.
- Prioritize the purchase of green bonds over fossil fuel bonds.
It’s not “wandering off” to recognize the economic risks of climate change. The Fed should step up and contribute to our global challenge by using their authority to help minimize those risks.